Below are representative examples of the Firm’s alternative investment litigation cases.
Southern District of New York
G&E represented Diverse Partners, LP, Troy Bank & Trust Company and an ad hoc group of institutional investors, distressed investors, insurance companies, community banks, and other investors to recover damages arising from AgriBank’s redemption of their 9.125% Subordinated Notes. This action was a breach of contract action. G&E’s clients held approximately $326 million (constituting 65.2%) of AgriBank Notes prior to redemption. In 2017, the court denied AgriBank’s motion to dismiss. On February 1, 2021, Diverse Partners, LP, Troy Bank & Trust Company and AgriBank notified the SDNY that they agreed to dismiss the SDNY Action with prejudice as part of a consensual resolution of the dispute.
New York Superior Court
On behalf of bondholders of various subsidiaries of Indonesian paper-making giant Asia Pulp & Paper (APP), G&E filed an action alleging that the bondholders were defrauded by APP’s financial statements, which were inflated by nearly $1 billion in fictitious sales. Defendants’ motions to dismiss were denied and the matter was resolved through confidential settlement.
G&E serves as global counsel in a case against BES, a Portuguese bank, which has been under scrutiny from Portuguese regulators since May 2014, when an audit reported accounting irregularities at its affiliate, Espirito Santo International (ESI). The findings caused a drop in the bank’s stock price by about 35%, as well as a sharp drop in the prices of the bonds issued by Espirito Santo Financial Group (ESFG) and BES, before trading was suspended in July and August 2014. The bank also replaced three members of the Espirito Santo family who had served as the bank’s CEO, deputy CEO and CFO. In late July 2014, ESI, ESFG and Rioforte Investments SA filed for creditor protection at the Luxembourg courts, and the losses will be borne by the shareholders and creditors of BES. Portugal’s central bank governor has stated that the actions of the bank group amount to fraud.
The Portuguese central bank has instituted a bailout of BES, and has created a “good bank” (for performing assets) and a “bad bank” (for toxic assets), while stockholders and junior debtholders have been wiped out. There are claims against the Portuguese government for expropriation, relating to the manner in which it allocated assets between the “good bank” and the “bad bank,” as the government owns a 100% interest in the “good bank.” In December 2015, the Bank of Portugal retransferred certain bonds from Novo Banco back to BES, causing a substantial drop in their value.
On March 29, 2016, a complaint was filed on behalf of G&E’s clients seeking to invalidate the retransfer of the bonds back to BES. In mid-2016, BES was placed into liquidation. G&E has filed claims in the liquidation proceeding.
Delaware Chancery Court
Jackson National Life Insurance Company (JNL), the flagship U.S. life insurance subsidiary of Prudential plc of the UK, retained G&E to assert a Delaware Chancery Court action against the sole director and controlling person of Benchmark Holdings and several of its associated entities in connection with the acquisition of Benchmark’s assets by the former James River Corporation, now Fort James Corporation. JNL had been a preferred shareholder of Benchmark, but the sale of substantially all the assets of the company, with no prior notice to JNL, left it holding a worthless interest in a shell company. At the same time, the controlling person pocketed some of the sale proceeds for himself; deployed other of those funds to discharge some of his own liabilities; and pursued a business opportunity from which he had dealt Benchmark out. Among its claims against all defendants, JNL sought to hold Fort James liable for aiding and abetting the controlling person in his breaches of fiduciary duty to JNL, for unjust enrichment and for imposition of a constructive trust. On a Fort James motion to dismiss, the Court held that the complaint could form the basis of a claim for the controlling person’s breach of fiduciary duty and that it sufficiently pled that Fort James knowingly participated in that breach by financially inducing the controlling person to misallocate the proceeds of the asset sale. Following the Court’s order, both Fort James and the individual defendant entered into a multi-million dollar settlement with JNL.
Southern District of New York
G&E currently represents a proposed class of investors who purchased cryptocurrency tokens called “EOS tokens” from block.one as part of a $4.1 billion initial coin offering (“ICO”) that occurred from June 26, 2017 – June 1, 2018. The price of the EOS tokens trading on secondary markets fell by 90%, as it became apparent that block.one’s promises of a highly decentralized block chain, which would register the transactions of the tokens, were fraudulent. On September 30, 2019, the SEC determined that the EOS tokens are securities and fined block.one $24 million for failure to register them as securities. The class action asserts violations of Sections 12(a)(1) and (5) of the Securities Act, for failure to register securities; violations of Section 12(a)(2) of the Securities Act, for selling securities pursuant to a false prospectus; and violations of Section 10(b)(5) of the Exchange Act for promoting and selling securities pursuant to false statements, as well as corresponding control person claims against block.one’s founders and key employees.
Southern District of New York; Bankruptcy Court for the Northern District of Illinois
G&E represented the lead plaintiff in a purported class action against Caesars Entertainment Corporation (“CEC”) and its subsidiary Caesars Entertainment Operating Company (“CEOC”) relating to a series of unsecured notes that were issued by CEOC and guaranteed by CEC. The complaint alleged that CEC, CEOC and certain preferred noteholders unlawfully amended the applicable indenture to eliminate CEC’s guarantee in violation of the Trust Indenture Act of 1939 and in breach of that contract. CEC’s motion to dismiss Danner’s complaint was denied in its entirety as it applied to CEC. CEOC, meanwhile, filed a voluntary petition for relief under the Bankruptcy Code, thereby staying litigation against CEOC. Nonetheless, G&E aggressively pursued the claims against CEC and opposed CEOC’s efforts in the bankruptcy court to enjoin, stay and release the claims attendant to the Danner case. G&E was also deeply involved in CEOC’s bankruptcy proceedings and related litigation in furtherance of the interests of its client and the class of noteholders. This case settled in August 2016, effective October 2017, when CEOC’s plan of reorganization became effective. The settlement provided improved treatment under the bankruptcy plan for the lead plaintiff and absent class members totaling between $14.7 million and $33 million. The settlement was implemented under CEOC’s plan of reorganization. The action in the Southern District of New York was dismissed following the effective date of CEOC’s plan of reorganization in October 2017.
Bankruptcy Court for the Southern District of Texas; Delaware Court of Chancery
G&E represented a public pension plan in litigation in the Delaware Court of Chancery and the bankruptcy court, relating to derivative claims on behalf of Clear Channel Outdoor Holding (“Clear Channel”) challenging its exploitation by its controlling stockholder, iHeart. iHeart’s bankruptcy gave rise to a negotiated separation of Clear Channel from iHeart on terms favorable to Clear Channel. Using the claims asserted in G&E’s action as leverage, in 2019, G&E’s client was able to secure iHeart’s agreement to the Clear Channel Plan and Separation Settlement of $25 million value. The client’s settlement provides substantial economic benefits to Clear Channel in exchange for, inter alia, the client’s agreement to release the claims asserted in the action.
Southern District of New York
G&E currently represents thirty-seven institutional investors regarding their 7.875% Subordinated Notes issued by CoBank, in a suit alleging that CoBank breached its contract by conducting an impermissible redemption of the Notes prior to maturity. The clients held approximately $300 million (constituting 75%) of Notes. The CoBank clients included: Nationwide Mutual Ins. Co.; Mutual of America Life Ins. Co.; Federated Life Ins. Co.; The Northwestern Mutual Life Ins. Co.; Erie Family Life Ins. Co.; The Ohio National Life Ins. Co.; Americo Financial Life and Annuity Ins. Co.; Athene Annuity and Life Co.; Continental Casualty Co.; Metropolitan Life Ins. Co.; Thrivent Financial for Lutherans; Health Care Service Corp.; Beaumont Health; Tauck, Inc.; Bio-Rad Laboratories; Inc., Dedham Institution for Savings; Waukesha State Bank; Ephrata National Bank; and/or their affiliates.
New York Supreme Court
G&E represented a number of institutional investors including U.S. and international banks, insurance companies, mutual funds and pension funds in twelve individual actions asserting fraud, negligence and various state statutory claims against Countrywide, JP Morgan Chase, Ally/GMAC, Goldman Sachs, Bear Stearns, Washington Mutual, Morgan Stanley, Barclays, Citi, Credit Suisse, Deutsche Bank, UBS and others stemming from the banks’ alleged material misstatements and omissions made in connection with the sale of residential mortgage-backed securities (RMBS) to the plaintiffs. Plaintiffs alleged that the defendants knew or should have known that the mortgage loans underlying the securities were highly risky and of low quality, and that they were issued to borrowers who were significantly less qualified than represented. When the inferior quality of the mortgage loans was revealed and the value of the RMBS plummeted, plaintiffs suffered considerable losses. The complaints filed by G&E alleged violations of Sections 11, 12(a)(2), and 15 of the Securities Act in addition to several state and common law causes of action. G&E secured substantial confidential settlements in each of the actions totaling approximately $165 million in the aggregate.
New York Supreme Court
G&E successfully represented Amalgamated Bank in prosecuting breach of representation and warranty “put-back” claims against Countrywide and Bank of America concerning Amalgamated’s investments in residential mortgage-backed securities (RMBS). Countrywide had populated the RMBS with loans that breached the underwriting representations and warranties in numerous ways, including inadequate to nonexistent underwriting. The case was settled following mediation.
Philadelphia Court of Common Pleas
G&E represented Benchmark Holdings and Jackson National Life Insurance Company (JNL) against the law firm Duane Morris & Heckscher and one of its partners, Vincent Garrity, which had represented Benchmark from its founding in 1991 until 1996 when JNL acquired control of the company. Benchmark and JNL alleged that Garrity and Duane Morris committed malpractice in connection with a series of transactions involving Benchmark from 1992 to 1995; tortuously interfered with JNL’s contractual rights as a preferred shareholder; and breached the fiduciary duty that they, as corporate counsel, owed Benchmark and its shareholders, including JNL. During trial, the parties reached a confidential settlement.
Bankruptcy Court for the Southern District of Texas
G&E represents a 1.75 Lien Lender and 2 Lien Lender in the Exco Resources bankruptcy cases. Representation includes appearing in the bankruptcy court on behalf of G&E’s clients in connection with plan of reorganization-related matters and representing the clients at multiple plan-related mediation sessions. G&E’s clients executed a Supporting Joinder Agreement to support Exco’s plan of reorganization, and that plan has now gone effective.
New York Supreme Court; Bankruptcy Court for the Southern District of New York
G&E represented a litigation trust established by the Bankruptcy Court for the Southern District of New York for the purpose of pursuing litigation on behalf of the creditors of Flag Telecom Holdings Ltd. The complaint in this case alleged breaches of fiduciary duty under Bermuda law by Flag’s officers and directors, aided and abetted by certain third parties, in connection with various fraudulent conveyances and the company’s filing of materially false financial statements. The suit was filed in New York Supreme Court and was subsequently removed to federal court by the defendants. In November 2010, the parties settled for $24.4 million.
Southern District of New York
G&E currently represents two limited partners who hold limited partnership units in GPB Automotive Portfolio, LP (“Automotive”) and/or GPB Holdings II, LP (“Holdings II”), collectively with Automotive (“GPB Investments”) and seeks to certify a class to represent all persons or entities who purchased or acquired limited partnership units in GPB Investments. The complaint alleges that the general partner GPB Capital Holdings, LLC (“GPB Capital”), GPB Investments and two related individuals falsely represented that the limited partners would be paid distributions “from actual cash flows and profits arising from the acquisition of dealerships,” but were actually paid distributions from “capital funds invested by subsequent investors.” The complaint also alleges that GPB Capital breached provisions of the GPB Investments’ limited partnership agreements requiring it to provide the limited partners with yearly audited financial statements in at least 2017 and 2018. In December 2020, the court denied these defendants’ motion to dismiss these claims. The parties are currently in fact discovery and preparing for a motion for class certification.
Eastern District of Michigan
G&E served as lead counsel to plaintiffs and class members who purchased or acquired over $1 billion in bonds issued by Hayes Lemmerz International, Inc. The complaint alleged that the company’s published financial statements were materially false due to various violations of general accepted accounting principles. G&E negotiated settlements worth $51 million with the company’s outside auditor, KPMG LLP, and certain of the company’s officers and directors.
District of South Carolina
G&E represented numerous public and private funds in a federal securities class action and a series of related individual actions against former officers, directors, auditors, and underwriters of Safety-Kleen Corporation, who allegedly made false and misleading statements in connection with the sale and issuance of bonds. This was only the fifth securities class action to go to trial since the passage of the Private Securities Litigation Reform Act. At the conclusion of trial, the court entered judgments in the amount of $192 million against Safety-Kleen Corporation’s former CEO and CFO. Settlements totaling $84 million were reached with the company’s outside directors and auditor, bringing the total in judgments and settlements to $276 million.
Bankruptcy Court for the District of Delaware
G&E represented a group of institutional investors who collectively owned over $600 million of senior and junior subordinated notes issued by WaMu Bank in a securities fraud action against WaMu Bank’s bankrupt parent company, WaMu Inc. Following the seizure of WaMu Bank by the FDIC, the clients were unable to pursue claims for their substantial losses directly against the Bank, and G&E filed bankruptcy claims against WaMu Inc., alleging that false and misleading statements made by WaMu Inc. induced investors to purchase WaMu Bank notes at artificially inflated prices. G&E actively litigated its claims in the WaMu bankruptcy case, responding to numerous challenges based on the subordination provisions of Section 510 of the Bankruptcy Code by the WaMu Debtors, the Unsecured Creditors’ Committee and other creditor constituencies. G&E ultimately achieved a financial settlement of its clients’ claims, which included a position for its note-holder clients on the WaMu Trust Litigation Trust Advisory Board, and an allowed $38 million Class 18 Claim under WaMu’s plan of reorganization plus interest on that allowed claim amount. This resulted in a $15.6 million distribution on account of the G&E group’s allowed Class 18 Claim.
Safety-Kleen was only the fifth securities class action to go to trial after passage of the Private Securities Litigation Reform Act.
$165 million in aggregate settlements across 12 actions against major banks asserting fraud-related claims.
$51 million bondholder settlement with KPMG and certain of the company’s officers and directors.